Analysts: Discover-PayPal Deal Bullish For eBay

By Teresa Rivas

Today, Discover Financial Services (DFS) and eBay‘s (EBAY) PayPal unit announced they are teaming up to allow PayPal users to pay with their account wherever Discover cards are accepted.

In this multi-year deal, PayPal users would get a physical card that they could use with any merchants that already accept Discover; the payment would go through Discover’s network and then be routed to PayPal, earning Discover a fee–much like Visa (V) and MasterCard (MA) earn from transactions.

Analysts largely cheered the deal as a positive for eBay. Caris & Co.’s Scott Tilghman writes “we believe the relationship will enable eBay to better capitalize on m-commerce opportunities as PayPal’s acceptance at domestic merchants nears ubiquity. Notably, PayPal customers will retain the ability to fully manage their digital wallets, which means they will be able to determine the source of funding for their purchases (credit card, debit card, bank account, Bill Me Later). Although the roll-out is not scheduled until 2Q13, we believe the existence of 50 million PayPal accounts in the U.S. will drive upside to existing FY13 expectations.”

Robert W. Baird’s Colin Sebastian writes “PayPal’s ability to leverage Discover’s network of more than seven million retail locations should provide meaningful scale in the “bricks and mortar” channel, which to-date is limited to 16 retail test partners. Moreover, we believe th

is initiative further distances PayPal’s digital wallet ahead of other mobile payment platforms, such as Google Wallet, Isis, and Square. Importantly, PayPal is generating meaningful growth through its core online payment service, and the offline opportunity is incremental.”

Lazard Capital Markets Atul Bagga writes “Despite growing competition in online payments and the digital wallet space, we remain optimistic about PayPal’s positioning given its large and growing userbase and increasing ubiquity in online checkout which we believe could help PayPal sustain momentum in the online payment business. We are also optimistic about its expansion outside of online payments, including in-store payments and mobile, which we believe significantly broadens the company’s opportunity and will be a growth driver over the longer term.”

And what about for Discover? Citi’s Donald Fandetti had this to say: “Should be viewed positively for DFS. Could raise some modest concerns about long-term disintermediation for the major networks Visa/MasterCard/American Express (AXP), as most investors have viewed PayPal as hampered at the point of sale.”

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AUGUST 22, 2012 4:02 P.M.

George wrote:

As far as ebay and making/saving $ goes, forget the stock and use the site.

Use a site like Ebuyersedge.com to set up saved searches. You get an e-mail whenever a matching item is newly listed. Especially good for "Buy It Now"s that are priced right.

Try a misspelling search using a site like Typojoe.com to hopefully find some great deals with items that have main key words misspelled in the title. Other interested buyers might not ever see them.

If you see an auction that you want to bid on, use a sniping service such as Bidball.com to place your bid for you. It'll bid in the last few seconds, helping you to save money and avoid shill bidding.

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